Romanian Leader Pledges More Budget Measures to Curb Deficit

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(Bloomberg) — Romania’s premier outlined fresh measures to cut the ballooning budget deficit as the new government seeks to safeguard the country’s investment-grade rating and ease investor concern. 

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The Black Sea nation plans to raise dividend and property taxes from next year, as well as put more emphasis on the performance of state-owned companies, according to Prime Minister Ilie Bolojan. These steps will be in addition to previously announced moves, including a temporary levy on “excessive” bank profits, higher excise duties and ending some exemptions to value-added tax. 

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The country put an end to months of political turmoil this week, with the emergence of a new coalition government that sees curbing the European Union’s widest fiscal gap as its key goal. The pro-European administration unveiled a plan this week to cut the shortfall by about 30 billion lei ($6.9 billion), which it expects will bring the public deficit close to 7.5% of economic output this year.

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“I want to tell investors that Romania knows its problems and it’s taking measure to tackle them,” Bolojan told reporters after a cabinet meeting in Bucharest on Friday. “We are in a difficult situation and it was only a matter of time until these measures became mandatory.”

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The country, which has natural gas and oil extraction operations, should also consider recalculating royalties for its mineral resources, Bolojan said. He added that some data suggested a drop in economic activity in the second quarter, and that the government planned to present a detailed fiscal plan next week. 

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While Romanian markets rebounded after the victory of a mainstream candidate in last month’s presidential election, the relief rally has stalled in recent weeks. 

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The leu is the worst performing currency in eastern Europe this week, dropping more than 1% against the euro. The Bucharest stock benchmark is down 1% over the period, lagging most global peers tracked by Bloomberg. Yields on the government’s domestic and foreign bonds have reversed their decline.

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Still, the government needs to tread carefully with unpopular measures as it’s already facing first signs of public discontent. Earlier on Friday, a minister said the cabinet plans to hand out vouchers to help the most vulnerable households cover their bills as a cap on energy prices is set to be scrapped at the start of next month.

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(Updates with context, markets starting from third paragraph.)

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